BofA explains how telecom companies can evolve to be AI winners

Bank of America's analysts have outlined how European telecom operators can leverage artificial intelligence (AI) to stay competitive and retain customers. The primary focus of AI adoption lies in sales, customer retention, and price comparison tools. As AI agents assist consumers in finding more affordable telecom packages and negotiating better terms with providers, the pressure on operators to lower prices and enhance customer experiences will increase.

The European telecom market has been subject to price arbitrage for approximately 15 years, mainly driven by entrants like Iliad and the rise of mobile virtual network operators. Consumers in the region have become highly price-aware, and fixed-mobile bundles, along with third-party services, have contributed to reducing customer churn. The proliferation of eSIM technology has made switching even easier, necessitating a need for telecom operators to incorporate AI into their strategies.

AI can aid operators in enhancing sales efforts, generating deeper customer insights, and offering personalized upselling or down-selling options to minimize churn. By identifying pricing gaps, operators can assess their exposure to competitive threats. For instance, in mobile services, entry-level incumbent tariffs in Switzerland, France, and Norway are priced 20%, 14%, and 11% below the average revenue per user, respectively.

This creates a higher risk of existing customers switching to cheaper plans. The highest competitive pricing pressure is observed in the Netherlands, Switzerland, and the UK, where challenger offers provide discounts of 71%, 66%, and 53% compared to incumbent back-book pricing.

In fixed broadband, the Netherlands and UK exhibit the highest spin-down risk, with basic incumbent tariffs priced 52% and 51% below the second-quarter average revenue per user (ARPU). Challenger discounts are most pronounced in the Netherlands, UK, and Italy, standing at 59%, 54%, and 50%, respectively. KPN, Virgin Media O2, and Orange France are the telecom operators with the highest overall exposure in mobile and fixed broadband services. In contrast, Deutsche Telekom, Telia, and Telenor are better positioned in the pricing analysis.